Will the elimination of import duties on South Korea help or hinder UK’s Trade?

27 May Will the elimination of import duties on South Korea help or hinder UK’s Trade?

In 2011 the UK established a Fair Trade agreement with South Korea. During that time there were several stipulations implemented with the country. However, the agreement did offer more freedom in terms of trade than any other agreement previously established between the UK and South Korea. What was monumental in this FTA is that it was the first deal to be struck with an Asian Country. Five years later the United Kingdom is encroaching upon the lifting of all import duties. The question which arises is if the lift will help or hinder the UK Trade?

Understanding the Trade Sectors

South Korea is quickly growing as one of the richest countries in the world, primarily due to the demand for their exports. And even though the GDP growth has slowed down, the “super expansionary” budget laid out by Finance Minister Choi Kyung Hwan as well as the double taxation on car purchases, residential property and tobacco has offset any decline which the country may have. When considering the impact that these increased taxes will have upon the UK, especially after import duties are eliminated, one has to look at the top exports of the country. These are:

Electronics

Vehicles

Machinery

Oil

Iron and Steel Products

Plastics

Rubber

Tobacco

Medical Equipment

Organic Chemicals

When compared to the UK imports globally, one can clearly see that trade between the UK and South Korea is most impacted in the Vehicle, Electronics, Machinery, and Organic Chemicals it imports.

What the elimination could mean for future export developments

The elimination of the import duties allows for the market to readdress various provisions of trade. Specifically, competition policy, government procurement, intellectual property rights, and transparency regulations. The issue that arises in this development is the same issue which has developed with other countries which have had trade relations with South Korea. By eliminating and renegotiating the intellectual property rights it opens the door for the country to demand that such rights be available to the country. This in turn can and has resulted in reverse engineering of property and technology by the South Korean government. Private industries acquired the necessary technologies by reverse engineering the imported machines, or through technical training as part of turnkey projects.

UK and South Korean Trade could suffer sustainably if the intellectual property rights are not negotiated carefully. As the UK is already seeing a decline in trade with the US and low percentile trading with Asian Importers (at 22.5%) it may be an ill-advised to lift such duties on the top exports. Consider. The UK’s #1 export is Machines, engines and pumps which is estimated to be 13.9% of the total exports. Vehicles account for 11% and Electronics for 6.3%. Interestingly, these exports rank as the counties top imports as well. And where utilizing parts and technologies from another country is nothing new to the global trade market, it should be addressed with caution. South Korea’s top exports to the UK include machines, vehicles, oil, and organic chemicals. It may be that the lifted trade duties will open wide the door for Korea, which has encouraged reverse engineering, to take our exports and combine them with other reversed technologies and sell them back to us at double the tax.

The Smartest course of action

Global relations are a necessity for any government to survive, and trade and exports are a fundamental part of such relations. However, this does not mean that the country has to be naive in their practices and policies. Where it is true that various agreements have been established with South Korea by various companies with success, the country as a whole needs to address exports and imports with caution. Should the taxation on imports from S. Korea increase, UK’S exports to South Korea needs to do the same to offset any financial loss. Additionally, the UK should seek sectors of trade of products which are currently in demand in S. Korea. The United Kingdom will continue to see a decline in global commerce if it continues to offer countries top export as our top export.

A new FTA should be constructed with S. Korea outlining in detail the stipulations and regulations on intellectual properties and fair use of products. The country should be limited to the amount of access to the engineering and manufacturing of products supplied through exports so as to secure ongoing trade relations and financial growth within the UK. Should the United Kingdom find that the eliminations are not in the best interests of fair trade such duties need to be re-instated.

As July 1st 2016 approaches for the elimination of the import duties on S. Korea, it will be interesting to see which policies and import changes are implemented.